Greenberg Fires Back At Directors

By JENNY ANDERSON

Published: August 5, 2005

Maurice R. Greenberg, the former chairman and chief executive of the giant insurer American International Group, has challenged the rationale for its $4 billion income restatement, calling many of the items ''exaggerated and unnecessary.''

In a document presented to regulators yesterday, Mr. Greenberg's lawyers point to many people, including the company's audit committee and PricewaterhouseCoopers, as being equally responsible for overseeing the company's complex accounting. It suggests that the company's huge restatement was carried out to justify Mr. Greenberg's ouster earlier this year.

The document, known as a white paper, is a gamble for Mr. Greenberg. He is named in a suit brought by the New York attorney general, Eliot Spitzer, which claims that he and others manipulated A.I.G.'s financial statements and misled regulators, and he continues to be under criminal and civil investigation by federal authorities. In late May, A.I.G. restated five years of results, lowering its net income over that time by $4 billion, or 10 percent.

The paper is ''a shot across the bow of the regulators who clearly are contemplating bringing criminal charges,'' said Robert A. Mintz, head of the white-collar defense practice of the law firm McCarter & English and a former federal prosecutor. ''It's a signal that this is clearly a winnable fight and it's far from a black and white case.''

Mr. Greenberg's lawyers challenge many of the restatement items and question what they call the board's rash judgment to force Mr. Greenberg's resignation before any charges were brought. The intense regulatory environment, they write, does not explain the whole picture.

''The rush to judgment may also be explained in part by the outside directors' interest in legitimizing their removal of Mr. Greenberg,'' the paper says, ''whose 38-year record in creating stockholder value is beyond dispute in American business history and by understanding the long-held ambitions of at least one or two such directors to take a leading role at A.I.G.''

Chris Winans, an A.I.G. spokesman, said: ''We have not been given access to the so-called white paper and we have no comment on it. We stand by our decision as fully disclosed in our recent 10(k) filing with the S.E.C.''

Darren Dopp, a spokesman for Mr. Spitzer, said, ''We'll let the case and the facts speak for themselves.''

Among the items that the paper challenges are an $850 million charge for asbestos and environmental reserves and a decision to expense already awarded long-term compensation.

It also examines the role played by both A.I.G.'s audit committee and PricewaterhouseCoopers for approving many of the transactions now deemed improper.

A spokesman for PricewaterhouseCoopers could not be reached for comment.

Mr. Greenberg's lawyers question A.I.G.'s reversal on how to account for stock awarded to A.I.G. employees by Starr International, a private company that ultimately became a vehicle to offer incentive compensation to A.I.G. employees. In its 10(k) filing, A.I.G. states that it did not previously expense the compensation because ''the amounts had been determined not to be material.''

As a result of that program, A.I.G. stockholders enjoyed a lower rate of dilution than other companies because Starr International, rather than A.I.G., could offer the compensation.

According to the paper, Starr International has offered information to A.I.G. that would enable it to save hundreds of millions of dollars through a tax deduction. A.I.G. has not responded to that offer, Mr. Greenberg's lawyers wrote.

''These changes to the form 10(k) may be an attempt by new management to set the bar as low as possible on the investment community's expectations of A.I.G.'s earnings going forward,'' the paper says.

The report does not detail Mr. Greenberg's role in a so-called finite insurance transaction with General Re, a subsidiary of Berkshire Hathaway, which Mr. Spitzer accuses Mr. Greenberg of orchestrating solely to dress up A.I.G.'s financials.

The report says the accounting community continues to debate the issue of when finite reinsurance contracts qualify as reinsurance accounting, calling the issue ''complex and highly subjective.''

But the document does not address Mr. Greenberg's motives in seeking the transaction. His lawyers say they have not received the documents necessary to review the matter properly.

The report takes shots at various individuals inside A.I.G. Mr. Spitzer's complaint alleges that management made accounting adjustments, known as top-level adjustments, to improve its results. Mr. Greenberg's lawyers say no top-level entries were made without consultation with PricewaterhouseCoopers, adding that Martin J. Sullivan, the current chief executive of A.I.G., was ''involved in certain top-level adjustments to general insurance loss reserves.''

Mr. Sullivan has not been accused of any wrongdoing. Through Mr. Winans, he declined to comment.